## doubt common probability queries

deepakkrkanodia
Finance Junkie
Posts: 49
Joined: Thu Aug 09, 2012 4:45 pm

### doubt common probability queries

sir

plz solve my doubts regarding below 2 question

1. a continuous uniform distribution has the parameters of a=4 and b=10. the F(20) is

a. 0.25
b 0.50
c 1.00

the answer is 1.00. plz tel how it is calculated and also the explanation.

2. portfolio A has safety first ratio of 1.3 with threshold return of 2%. what is the shortfall risk for a threshold return of 2%

a. 9.68%
b. 40.30%
c 90.30%

the answer is 9.68%. in it z table value is taken for 1.3. i cannot understand why z value is used in safety first ratio.
what is the relationship btwn z table and safety first ration. plz explain..

regards

deepak kanodia

Tags:

akshat
Good Student
Posts: 10
Joined: Wed Aug 22, 2012 11:53 am

### Re: doubt common probability queries

1. F denotes the cumulative probability function and thus F(20) indicates sum of all probabilities for values of x<=20, since probability values are zero for x<4 and x>10 and the sum of all probabilities for 4<x<10 is 1.00. Thus cdf F(20)= 1.00

2. You are right that z-value would make no sense here. We should have been given the risk value, in order to enable the calculation of return value from the safety ratio formula. Then, we could have calculated shortfall risk using this return and the target rate (2%). But since the risk value is not given, we cannot proceed. The solution given is wrong!

deepakkrkanodia
Finance Junkie
Posts: 49
Joined: Thu Aug 09, 2012 4:45 pm

mr akshat

thx

regards

deepak kanodia